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In Medicare, a $170m savings for Raytheon
by Jeffrey Krasner    The Boston Globe
Entered into the database on Tuesday, November 29th, 2005 @ 17:45:34 MST


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Drug benefits shift for retirees

Raytheon Co. will save $170 million by using a new Medicare plan to shift some expenses for retirees' prescriptions to taxpayers.

The change also will provide savings to retirees.

Many retirees found out last week that their monthly premiums for health coverage will drop. The decline is expected to amount to more than 50 percent, to $60 from $125.

The Waltham defense contractor said that under its new benefits package, retirees will receive prescription coverage primarily through the new Medicare drug plan, which is scheduled to take effect on Jan. 1.

The company will provide supplemental coverage, filling gaps in the government program.

''There's a reduction in the cost because somebody else is paying for the drug benefits," said Ched Miller, the company's manager of retiree benefits. ''Not the retirees, and not Raytheon."

The complex new benefit, known as Medicare Part D, gives companies many options for offering drug insurance to retirees. Some, like Raytheon, are opting to let the federal government assume much of that obligation.

This has caused some Massachusetts officials to question the 2003 legislation that created the drug benefit.

''Is this whole program about enabling companies to reduce costs, or is it about providing drug relief to people?" asked William F. Galvin, the secretary of state. ''If it's the government's policy to encourage employers to ditch coverage, it's not what we had in mind."

Galvin said the benefit has generated a ''windfall" for Raytheon.

That wasn't supposed to happen. When details of the drug plan were released this year, Medicare officials spoke of a need to create an incentive for employers to continue providing drug coverage for retirees -- a benefit many are eliminating to save money.

Statistics on how many firms offer drug coverage for retirees are not available, but healthcare consultants say that most companies that offer health coverage also provide some sort of drug insurance.

Among companies with more than 200 employees, 66 percent provided retiree healthcare benefits in 1988, according to surveys cited by Medicare documents. In 2004, only 36 percent provided such benefits, and only 5 percent of firms with fewer than 200 employees offered health benefits.

To help prevent companies from dropping drug benefits, the federal law includes $71 billion over eight years in subsidies to employers. Officials at the Centers for Medicare and Medicaid Services, which oversees the new drug plan, said they expected that most employers who offer retiree drug benefits would use the subsidies to maintain coverage.

Mark Hamelburg, director of the employer policy and operations group at the centers, said that while it is too early to say how most companies have responded, surveys indicate that many will use the government subsidies. But the law also permits them to move the bulk of their drug coverage to Medicare, he said.

''It provides relief to employer policies," he said.

Barry Gilman, a principal at Mercer Health & Benefits in Boston, said most companies that still provide retirement healthcare benefits will continue coverage by making use of the government subsidy.

Others, like Raytheon, have put into place plans that supplement Medicare; still others have eliminated drug coverage altogether, leaving retirees dependent on the government benefit.

''The question is whether an employer looks at this as a way to reduce their obligations or as a way to continue providing their benefit with a government subsidy," Gilman said.

Miller, the retiree benefits manager, said Raytheon had considered accepting an annual government subsidy of about $670 per beneficiary, and continuing its drug coverage under a self-administered plan.

But the company, he said, was concerned about the complexities of such an undertaking.

It was easier to rely on the government program, supplemented with a company plan to fill what is known as the ''doughnut hole" -- the annual spending range of $2,250 to $5,100 not covered by the plan.

Raytheon will cover 80 percent of the drug costs within that ''doughnut hole."

Of 60,000 retirees who receive pension benefits, 24,000 are eligible for a plan with drug coverage.

The change is a boon to retirees, said Bruce Nogueira, vice president of benefits for the Association of Raytheon Retirees.

''In general, people will save money," he said, even though they will be paying an additional premium for the Medicare Part D drug plan. Some plans in Massachusetts feature premiums that amount to less than $8 a month.

But Nogueira said retirees are faced with choosing from among dozens of options.

''The implementation is going to be a nightmare," Nogueira said. ''Nobody understands it."

Jeffrey Krasner can be reached at